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Taking the right exit: Management succession

Published: 
Thursday, November 22, 2012

 

The last couple of articles have focused on ownership succession: how, when, and to whom do the family business (FB) shares go? These are critical issues that every business owner faces and is the cause of personal angst for many parents. These topics are within the domain of the family ownership and usually do not overtly spill over into the functioning of the business. 
 
The same cannot be said of management succession: the other succession process in which an FB needs to engage. 
 
What will the leadership structure of the company look like going forward? Who will be calling the shots? How will that person or persons be chosen? When will the succession finally happen? How will the new leader(s) interact with the old guard? What is the company’s agenda and strategy for next few years? How do we get the existing chief executive officer (CEO) to step aside and make room for the next generation of leader(s)? 
 
This article focuses on what many FBs view as the Herculean task of getting the current CEO to vacate the position and make room for his son, daughter, younger brother, nephew or niece or a non family member to take the helm. 
 
 
 
Swallowing the medicine 
 
This is particularly pertinent when a FB has no explicit retirement policy for family members. In too many FBs, God is the Human Resource Director who ultimately calls the family member CEO home and that is how the seat becomes unoccupied. By this time, the adult members of the next generation are spent just trying to do the bidding of the senior and have not had been able to “mature” into the role, as one 86 year old founder and current CEO put it. 
 
While I sometimes cringe upon encountering situations like these, I appreciate and understand that giving up the position is a bitter PIIL for the seniors to swallow. 
 
First off, the CEO must contend with redefining his or her Purpose in life. What will that person do every day for the rest of his life? 
 
What reason to get out of bed? How many rounds of golf or bridge can one soul play on a daily basis? After decades of defining himself as the CEO of this FB and living, eating and breathing the role, what will his new Identity be? 
 
Former CEO of a FB does not carry quite the ring and stature as former president or prime minister of a country. There is the concern that he will lose his Influence. 
 
When the Chamber of Commerce or the Business Guardian needs a viewpoint or comment on some pressing business issue, they will call the current CEO, not the past leader. Without the stimulation of business deals, financial juggling and people problems, how and how long will the retiree Live? Every senior generation member who will not give up his post in an FB can, and does cite an example of someone who retired in perfect health and died. they claim of inactivity, in less than one year. 
 
These are all valid concerns and need to be addressed and attended to long before the day actually comes. Part of the challenge here is for the senior to think about how, if at all, he will exit the business. 
 
 
 
The Six Approaches 
 
In one of his books on Family Business, Ernesto Poza gives a vivid characterisation of possible ways for the senior to manage his succession. He cites six possible choices that are available to the senior generation member. And make no mistake about it; it is a choice. 
 
The senior must decide whether he or she wishes to be a monarch as in those who hold on to the crown till death do us part . This approach spawns the likes of Prince Charles waiting in the wings for his chance to rule even as his own children come of age to assume leadership. 
 
Then there is the general who makes the grand gesture and retires but keeps his political contacts close and expects to be recalled into action when the current crop of leaders just cannot get the job done. 
 
Never mind that the reason for their inability to lead is that the general’s men sabotage them by not taking directions and still consulting regularly with the retired general, often at his bidding. 
 
Another role is that of the Inventor who leaves the current business behind and moves onto creating another business and in some cases a brand new life. 
 
I have had succession successes when the senior has some burning project—business, philanthropy—just waiting on the availability of time. They are engaged in something new and exciting that allows them to exercise the creativity and skills they used while in the business. Then there is the czar who remains active in his role of planning and consulting in the business. 
 
The difficulty here is if the czar sets himself up as the final decision agent so all roads lead to his Roman emperorship. The governor, like his political namesake, has a very public and final transfer of power. There is a transition period and when he goes, he really goes. Finally comes the ambassador who stays connected to the business by becoming the public face and advocate of the business while not entering into the daily political grind. 
 
Once good planning prevails and God loses his job as HR director, the senior generation member must now consider what I have seen described in FB writings as “reshaping” not retiring. He needs to redefine his role in the business; not relinquish it completely if that is not what he wants. 
 
Frankly, I am yet to come across a senior generation member who wants to sever ties with the FB completely. The trick is to define his or her continuing involvement and make it productive for the senior, successor, the business and the family. The onus is on the senior to fully reflect on what he would like his legacy to be—that of steward who understands that he does not possess the family business but merely borrowing it from the next generation or a star who insists on top billing even when he can no longer carry the show. 
 
Dr Annette Rahael is a family business adviser 

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